The Self-Managing Landlord: More Profit, Time, and Peace of Mind with DIY Rental Property Management

By Amelia McGee and Grace Gudenkauf

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• Language: English
• Publisher: BiggerPockets
• Release date: May 21, 2024
• ISBN: 9781960178220

Amelia McGee

Amelia McGee is a full-time real estate investor who self-manages a portfolio of over 35 doors consisting of long-term, medium-term, and short-term rental properties. Since beginning her investment journey, she's utilized multiple strategies to attain financial freedom through real estate, including private money borrowing, private money lending, flipping, BRRRR, creative financing, and partnerships. Amelia is also passionate about encouraging other women to begin investing in real estate and co-owns the business WIIRE (Women Invest in Real Estate) with Grace Gudenkauf. Together they host real estate retreats for women, have created multiple real estate investing courses, and have a weekly podcast. She currently lives in

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Preface

We’re two full-time real estate investors who might not be that different from you. We didn’t start out with a background in real estate, we didn’t inherit a portfolio of properties, and we feared failure when we first started out. We both consider ourselves scrappy, self-taught investors who had to figure out everything for ourselves along the way. We each started with one property and a dream to someday be full-time investors and entrepreneurs.

For us, it never made sense to hire a property management company. We were running on tight budgets and needed to stay in the driver’s seat to not only increase our bottom lines but have complete control over our businesses and the success of them. We built our systems and processes from scratch, with no real blueprint. We learned how to list properties, onboard tenants, create leases, handle problem tenants, and so much more through experience—with many mistakes along the way.

We’re so excited to share our experience and knowledge with you so that you, too, can enjoy the power of financial freedom through real estate investing. We hope to share some stories that make you laugh and cringe and teach some tough lessons on how you can do better than we did as a self-managing landlord. For us, real estate investing is a means to an end. It’s an amazing vehicle that allows us to live out our dream lives—and we’ve been able to accomplish a lot in the few years we’ve been investing.

You may be thinking, A few years?! How do they have enough experience to be teaching on the topic of self-managing rental properties? It’s true that we are still in the throes of self-managing and growing our portfolios. We aren’t multimillionaires with massive rental operations. But that means we have insight into the day-to-day of our businesses. We are in the trenches every day, digging into our businesses to find inefficiencies and streamline processes. Before we dive in, we’ll tell you a bit more about our individual investing journeys.

Amelia

I’ve always been an entrepreneur, even as a young child. There wasn’t a day that went by where I didn’t count the money in my piggy bank or scheme up different ways to make money in whatever fashion I could as a seven-year-old. I would make treats in my Easy-Bake Oven and sell them to my parents and siblings for quarters. In elementary school, I would create bookmarks out of my mom’s sewing scraps and sell them to my classmates. The big bucks came from the lemonade stands I would run on the corner of my busy street during the summer. Sometimes I would even come home with $20—I was rich!

As I got older and graduated from college, the itch of entrepreneurship was always there just waiting to be scratched. I always knew I would eventually work for myself, I just didn’t know what I would be doing. Enter real estate. I have to admit, I was one of those people who watched the HGTV shows and thought, How hard can flipping a property be? I’m handy and good at budgeting money and researching repairs! The problem was, I was working a job that paid $50,000, and I had focused the first five years out of college on paying off my student loans, so I didn’t have much saved to start flipping properties with. Turns out (at least for me, at the time) that that takes some money up front.

I remember first bringing up the idea of partnering with my parents on a flip to my mom, a fellow dreamer and entrepreneurial spirit (and avid HGTV watcher). She was hesitant at first, but I knew I’d be able to get her on board, as she was also looking for a creative outlet and a way to make some extra money going into retirement. Next up was working on my dad, who was a harder nut to crack. It took two years of me sending deals to them, with all of the numbers included, for us to finally purchase a dilapidated home with my parents’ line of credit, and we were off to the races.

We spent all our nights and weekends working on the property and managed to finish it in April 2020 and sold it for a nice profit. During the flip, I realized that flipping (or at least DIY flipping) was not for me. I didn’t want to spend all my free time working on a property. As I was working on the flip, I stumbled across BiggerPockets, which taught me about the buy and hold rental strategy. After we sold the flip, I took my half of the profit and used it to purchase a fixer-upper triplex. Just like with the flip, I had no experience in being a self-managing landlord, but I’d started to see how powerful real estate could be. This was going to be my way out of working for the man and into the entrepreneur life!

This triplex is one of my proudest accomplishments to date. I purchased it by myself for $78,000 (yes, you can really buy a property that cheap in Iowa!) and had to start problem-solving before I’d even closed on the property, due to issues with appraisal timelines and inherited tenants. I was learning how to roll with the punches right out the gate. I’m so thankful I was brave enough and mustered up enough confidence to go through with that purchase. It was the beginning of my life as I know it today: one where I get to play pickleball at noon on a Tuesday and work on my real passion project business, Women Invest in Real Estate (WIIRE), with Grace.

Since then, I’ve grown my portfolio to over forty doors. I attribute a lot of my rapid growth to the fact that I self-managed for many years. This saved me tens of thousands of dollars, which has allowed me to continue reinvesting that money to buy more properties. Not only that, but it taught me an invaluable skill (property management), which I’ve been able to use in partnerships that would have never been possible without it.

Grace

I could practically feel the sunshine and ocean breeze on my face. It was May of 2020, and I was graduating from college with a cushy engineering job that would relocate me to the beautiful town of Carlsbad, California. Leaving my home state of Iowa was something I had always dreamed of, and I was beyond happy with my post-graduation plans. There was no way it could get any better. But I never made that move to Carlsbad. Somehow, I ended up quitting my full-time job less than a year in, in the middle of the COVID-19 pandemic, and decided to stay in my hometown of a thousand people and strike out on my own in real estate.

Crazy? Probably. Risky? Absolutely. But there was something deep inside me that knew I wanted to build something bigger, and live life on my own terms. I had only started in real estate about six months earlier (and about six months into my first and only full-time job). As an energetic twenty-three -year-old, I was looking for something to do during the cold Iowa winter, in the middle of COVID and wound up partnering on a DIY gut that took six months to complete. Honestly, it was miserable. And yet I fell in love with it.

After that first project I knew real estate was my ticket to a level of freedom in life that most people never understand. I got to work and promised myself I would never let money stand between me and a good deal. Turning to creative financing (buying directly from the owner over time rather than paying cash or using the bank), the BRRRR method, and borrowing private money from other investors helped me build up over twenty single-family and small, multifamily units in about two years. My business has since grown to include two full-time employees, and we have started diving into fix-and-flip properties (where we buy, rehab, and resell immediately) and redeveloping mixed-use properties.

What started as a completely hands-on business turned into a 100 percent remote effort in just a few years. One year in, I ran off to Mexico City for a month to see how I could manage my small portfolio and singular rehab project remotely. Two years in, my partner Brandt (in life and business) and I decided on a whim to move to Tucson, Arizona, a city where we knew no one and had never visited. Freedom was what I was after, and I needed to find a way to learn to delegate and outsource. Moving away from my portfolio was the best way to make that happen.

Not in a million years would I have imagined the business that I have now built for myself. Three years after diving into the world of investing, I have two full-time employees in my real estate business and three part-time employees in my other business, WIIRE, with Amelia. When I take a step back to think about my life, I feel truly enamored with what I have built for myself. Very few people can say that they can take time off whenever, without having to ask. Or that they can decide exactly what they want to work on and with whom. Investing in real estate has allowed me to live a fuller and more meaningful life. I truly feel that I have control and freedom (and profit too!).

Choosing to self-manage my portfolio was a catalyst in getting me to where I am today. I hacked self-management to hire a team around me, pursue financial freedom, and free up time to focus on what I love, which is WIIRE. Through building out my business I also realized I love systems and processes and now get to help other investors and small-business owners figure out the best way to systemize, automate, and delegate in their businesses so they can have more profit, freedom, and time too. Self-managing has given me valuable experience that I bring to partnerships, and comfort knowing that my business is functioning at a high level.

As you can see, self-managing has been essential to the success of both of our businesses. A lot of people think managing your own properties means dealing with midnight emergencies and constantly hassling tenants for rent. But it’s way more than that. It’s about taking the reins of your business and shaping it to fit your lifestyle and what you want to achieve in real estate.

One of the biggest benefits of self-managing is the chance to keep more cash in your pocket. When you’re hands-on with everything, you can make smart decisions that boost your profits. You get to decide where your money goes and find opportunities to make your investments pay off even more.

Plus, going the self-management route leads to better quality all around. Your properties stay in top shape, and you attract good tenants by personally handling placement. It’s not just about the physical condition of your properties; it’s about creating a positive and stable place for people to live.

But maybe the best part is the peace of mind that comes with self-management. Being in control and making decisions about your business day-to-day gives you confidence. You know you’re steering the ship, not just reacting to the storm. And that can take a load off your mind. It’s not just about reacting to problems; it’s about being the boss and feeling secure in your real estate business.

Introduction

Why Our Approach Is Different

In the investing world there have traditionally been two approaches to management: The first option is to pursue the DIY self-manager approach. Investors who take this route try to put as little time and effort into managing their properties. While this seems like the easiest option, the set it and forget it approach of most self-managers often leads to more work and more stress, as you are stuck in the reactive phase of management. Rather than trusting the systems you have built, being reactive can also feel like you are waiting for the other shoe to drop. Self-managing lets you keep a significant portion of your cash flow, but at what cost?

On the other hand, many opt to hire a property management company off the bat. We will call this option #2. These big management companies typically take 8–10 percent of the rental income off the top every month, and that does not include any other fees. In this case, the owner often dumps the property or portfolio into the company’s hands, and they take it from there. Often the owner will feel immediate relief as they think the management component will be no more. What they fail to realize is that you will still have to manage the property manager. Whether it’s turnovers, repairs, or inspections, you are not off the hook, even after paying the hefty management fee. Because these companies operate on such tight margins, they typically have to manage hundreds of units to stay profitable, meaning your property still isn’t managed in the best way possible.

These two options often make management seem like a lose-lose situation: You either take on what feels like an additional and stressful job to keep your cash flow, or you spend an arm and a leg to hire it out to a third-party, who typically ends up providing subpar service. We are here to tell you that there is hope! You can keep your cash flow and ditch the stress of managing your rental portfolio.

For the first time, we are introducing a third option: Become a self-managing landlord armed with systems and processes to maximize your cash flow, minimize stress and time, and provide a better quality home for your tenant. Instead of looking at managing like a job, we invite you to step into the mindset of looking at it like a business. For some reason, this option is not talked about enough. Investors focus too heavily on acquiring, acquiring, acquiring and leave the topic of management to the wayside. We wholeheartedly believe the route of the self-managing landlord to be the superior route for most investors. This is the route we have both chosen within our own portfolios. Throughout this book we will lay out exactly what that could look like for you and your portfolio.

What Is a Self-Managing Landlord?

Being a self-managing landlord is a major real estate life hack. Your tenant pays down your mortgage every month, you receive tax benefits such as depreciation, the home goes up in value every year, and you get paid every month for it via your cash flow. This is the recipe for ultimate freedom—the freedom to travel when you want and work when and on what you want. The freedom to volunteer. The freedom to spend time with friends and family. The freedom to be in ultimate control of your life.

That is what being a self-managing landlord is: It’s about living life on your own terms because you are in the driver’s seat. On the other hand, building a portfolio that is only motivated by money is not freedom either, nor is being a slave to your own business and working long, stressful hours chasing that next property. We want you to build an intentional and purposeful portfolio—one that serves your tenants and serves you as well. One that creates generational wealth. A self-managing landlord knows how to invest time, energy, and money into their business now, so they can build a meaningful and purposeful life one step at a time. Last, a self-managing landlord does not invest to show off their wealth. You won’t find a self-managing landlord racing luxury cars, wearing only designer clothes, or going on fancy trips. Rather, we understand that true wealth starts with taking off on a sunny Tuesday afternoon because we can, valuing experiences over material items, and a portfolio that supports a sustainable and meaningful lifestyle. This is the version of life we are after and the version of life we will teach in this book.

Who Is This Book For?

Are you new to investing and excited to grow your wealth through real estate? Or are you already an investor, and have been acquiring more properties without adding to your bottom line? Or maybe you are looking to systemize your portfolio and actually run it like a business? If the answer to any of these is yes, the self-managing landlord method is for you.

If your aim is to be a truly passive real estate investor through a syndication as a limited partner (lending on a large-scale real estate investment with a hired-out team to manage the deal), note investing (purchasing debt and its security), or other activities, then you likely won’t ever be a part of the management world, and this book may not be the best fit for you. However, someone on your team will be in the management position, so we recommend that you send this book to them!

There are many benefits to being a self-manager, including higher tenant and property quality, increased income, and acquiring a valuable skill for potential future partnerships.

What You’ll Learn from This Book

Managing is arguably the most important part of owning real estate. Poor management can make the best deal go sideways. In Part 1 we are going to introduce you to being a self-manager. We will walk through how to be organized and create systems and processes and what tools you will need to be a successful self-manager. This will be crucial, whether you are just starting out or have built an impressive portfolio and need to retroactively systemize your management. Part 2 will introduce you to the essentials of renting a property. This will be a lot of the how-to of renting and is great for those who are brand new or have not yet started managing any properties, as it gives you a step-by-step guide on what you need to do.

Difficult situations and maintenance will be addressed in Part 3. Here we will walk through examples of challenging situations and how we would handle them. Finally, we will go over what it looks like to scale smart in Part 4. If you have a more established portfolio or are looking to scale quickly, this is really going to help you run your business like a business, elevating you to the CEO position as you grow your team. All of these culminate into what we call being a landlord.

Investing Strategies

Within long-term rental property acquisition, there are a lot of different strategies you can use. All of these fall under the landlord principles. Our personal favorite is the BRRRR strategy—Buy, Rehab, Rent, Refinance, Repeat.¹ This strategy allows you to use one chunk of capital to acquire multiple properties using cash-out refinances.

Of course, the traditional option is to buy and hold. This is the simplest strategy, as you simply buy the property, rent it out, and hold it for the long term. These types of properties tend to be rent-ready. The goal is to hold for a significant period of time.

House hacking is another amazing strategy. You can use an owner-occupied loan on a one-to-four-unit property (think duplex, triplex, fourplex) and only put 3–5 percent down. We also recommend this strategy to get started as it allows you to practice being a landlord while in the comfort of your own home. Because it’s owner-occupied, you are able to purchase the property with a significantly lower amount of cash (3–5 percent) meaning there is a much lower barrier to entry financially.

The above strategies are acquisition strategies, meaning they have to do with how you purchase the property. Once you own a rental, there are a few different ways to rent the property for cash flow. In this book we are going to delve into the world of managing long-term rental properties specifically. While we won’t focus on short-term rentals or midterm rentals, there are two great books you can refer to in order to learn more about those rental strategies: 30-Day Stay by Sarah Weaver and Zeona McIntyre and Short-Term Rentals, Long-Term Wealth by Avery Carl.²

Finding Your Why

There is no magic answer for what strategy you should use; finding your why is a common phrase in the investing world for a reason. No two people are going to invest in real estate with the same experience, abilities, resources, and goals (your why). In order to strategize in a way that makes sense for you, you need to understand your why.

For example, Hannah might be in her twenties with no kids and have low living expenses and a lot of time and energy. She decides her why is to quit her job as soon as possible to dive into real estate investing as a full-time job. To do this Hannah might pick riskier (remember, high risk equals high reward) strategies to accumulate cash quickly. Perhaps she would decide to become a fix-and-flip or BRRRR investor, putting in long nights and weekends to meet her goal of quitting her W-2.

Let’s imagine another investor, named Jared. Jared has three young kids and a great job. Rather than trying to quit, he’s investing for his children’s future and his and his wife’s own retirement. They are a lot more risk averse, as they have a family to put food on the table for. Also Jared isn’t looking to become the next big real estate investor; rather he wants to build a future nest egg for retirement and their kids’ college tuition.

Clearly, Hannah and Jared have completely different outlooks on how they want to build wealth through real estate. They will not look at the same deal the same, and they shouldn’t, because they have separate goals, experiences, and risk-tolerance. Jared likely wouldn’t even consider buying the types of properties Hannah likes to purchase, and vice versa.

Your why is going to be the foundation of your investing journey, and you should always use it to lead you through your decision-making. It’s easy to covet other people’s success—especially on social media—but do not get distracted. Your why will also help you eliminate shiny-object syndrome (wanting to try every strategy and do every deal under the sun) and simultaneously help you evade analysis paralysis (continually educating yourself and never actually taking action).

Importance of Cash Flow

Cash flow is important to investors for a few reasons: First and foremost, we want to get paid to own rental properties. The last thing you want to do as an investor is go through all the work of owning and running a rental property and not get paid for it. Any self-managing landlord knows that cash flow is king. If you aren’t going to get paid from your real estate, then it might make sense to invest in the stock market instead. Cash flow is what pays you, the bills, and anyone on your team.

It’s also important because it can help you build reserves. Reserves pay for future vacancy, capital expenditures,